Which Statement(s) Are True Regarding the Liquidity Premium Theory

question 89

Multiple Choice

Which statement(s) are true regarding the liquidity premium theory:

• A) States that long-term rates are equal to geometric averages of current and expected short-term rates.
• B) Liquidity premiums that increase with maturity result in upward sloping yield curves.
• C) An upward sloping yield curve may reflect investor's expectations that future short-term rates will be flat.
• D) All of the above.

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Definitions:

Physical Needs

Basic requirements for human survival, such as food, water, shelter, and sleep.

Hyperphagic

Characterized by excessive eating.

Aphagic

Characterized by undereating.

Esteem Needs

According to Maslow's hierarchy of needs, these are the fourth level and involve the desire for respect, self-esteem, and recognition from peers.